1. The facts giving rise to this second appeal are as follows: On 1-6-1895 one Saida mortgaged the land in suit to Bhana, pre-decessor-in-interest of the plaintiffs, for Rs. 3700 by a registered deed. About ten years later, on 31-5-1905, Allah Ditta and Kalu sons of Saida, who had died by that time, sold the land to Lehna Singh father of Narain Singn and Hargopal Singn, defendants 1 and 2, for Rs. 3000 also by a registered deed, according to the terms of which a sum of Rs. 1300 was paid in cash and Rs. 1700 remained with the vendee for payment to the previous mortgagee. Whether Lehna Singn was unable or unwilling to pay this amount, it is at any rate certain that he did not do so, and he allowed the land to remain in possession of the mortgagees, and so matters remained until after the passing of the Punjab Restitution of Mortgaged Lands Act, 4 of 1938, when, taking advantage of this Act the sons of Lehna Singh applied to the Special Collector who on 21-8-1945 passed an order under the Act extinguishing the mortgage and granting possession to the sons of Lehna Singh without payment. The suit was instituted in October 1945 by the successors-in-interest of Bhana, the original mortgagee, for a declaration that the mortgage of 1895 could not be extinguished without the payment of Rs. 1700 together with an injunction restraining defendants 1 and 2 from obtaining possession of the land from the plaintiffs, or in the alternative for the recovery of Rs. 1700. Defendants 3 to 6 were impleaded as the successors-in-interest of the original mortgagor who were alleged to have transferred their right to recover Rs. 1700 to the plaintiffs by a document executed on 1-9-1945. The suit was contested by the sons of Lehna Singh who raised the preliminary legal objection that the suit could not be entertained by the Civil Court under Section 12 of Act 4 of 1938 so far as it related to the relief of declaration and injunction. This objection was upheld by the trial Court which, however, held that it could try the suit by the plaintiffs for the recovery of Rs. 1700, on the basis of the transfer of their rights to the plaintiffs by defendants 3 to 6. Regarding this claim the issues framed were:
(1) Did defendants 3 to 5 sell their rights to recover Rs. 1700 from defendants 1 and 2 in favour of the plaintiffs?
(2) Could defendants 3 to 6 valldly sell the said rights to the plaintiffs?
(3) Did defendants 3 to 6 acquire any right to recover Rs. 1700 from defendants 1 and 2 by the extinguishment of the mortgage under Punjab Act 4 of 1938? The trial Court held that defendants 3 to 6 had in fact assigned their rights to the plaintiffs in respect of the sum of Rs. 1700,' but on the strength of a decision of their Lordships of the Privy Council in -- 'Izzat-un-Nissa Begam. v. Pertab Singh', 31 All 583 (PC) held that neither defendants 3 to 6 nor the plaintiffs were entitled to recover Rs. 1700 and the plaintiffs' suit was accordingly dismissed. The plaintiffs appeal was heard by the Additional District Judge, Ferozepore, who affirmed the decision of the trial Court regarding the non-maintainability of the plaintiffs' suit for declaration and injunction, which point was not pressed before him, but held, on the strength of certain decisions of Courts in this country which had purported to distinguish the decision of the Privy Council, that in the circumstances of the case-the original vendors were entitled to recover the sum of Rs. 1700 from defendants 1 arid 2, and that 'the plaintiffs, having acquired the rights of these defendants, were therefore entitled to recover this amount from the defendants. The plaintiffs' appeal was accordingly accepted and they were granted a decree for Rs. 1700/- with costs in both Courts against Narain Singh and Hargopal Singh, who in their turn have come to this Court in second appeal.
2. Their appeal originally came up in October 1948 before Teja Singh J. who seems to have been somewhat doubtful whether the decisions relied on by the learned Additional District Judge did not run counter to the decision of their Lordships of the Privy Council, and therefore was of the opinion that the matter should be referred to a Division Bench.
3. The doubts expressed by the learned Single Judge as to whether the decisions of Courts in this country were not opposed to the decision of the Privy Council certainly appear to have been well founded. Briefly the facts in-- 'Izzat-un-Nissa Begam v. Pertab Singh', (31 AH 583 P. C.) were as follows: In a suit instituted in 1887 the plaintiff, Mst. Intizam Begam obtained a decree for the sale of nine villages mortgaged with her as security for a loan of Rs. 30,000, this decree being affirmed by the Allahabad High Court on 25-2-1889. Thereafter the sale of the villages was ordered, it being stated in the proclamation that the property was to be sold subject to two prior mortgages for Rs. 10000 and Rs. 20000 respectively. At the auction sale the decree-holder herself bought eight of the villages for Rs. 64000 the other villages being sold to another purchaser, on 20-4-1894. The position as regards the two mortgages subject to which the sale took place was that the first mortgage, which was of 13 villages including the villages then in suit, had not yet been enforced, but in respect of the second mortgage, which included one of the villages mortgaged with Mt. Intizam Begam, a decree had been obtained by the mortgagees on 9-6-1892, the mortgagees being the same persons in both cases. However, the mortgage decree of 1892 was set aside by the High Court on 15-1-1895, and the order of the High Court was affirmed by the Privy Council in 1898. A suit was also brought to enforce the first mortgage but this was dismissed by the trial Court on the strength of the decision of the High Court regarding the second mortgage, and the decree of the trial Court was affirmed by the High Court in May 1899. Mt. Intizam Begam died in 1897 and her successors-in-interest were Izzat--un-Nissa Begam and another, and as a result of the failure of the suits based on the two mortgages subject to which the sale in favour of Mt. Intizam Begam had taken place they became unencumbered owners of the property which she had bought. However, in 1901 Partab Singh and others instituted a suit against the representatives of Mt. Intizam Begam alleging that the real purchase money of the property sold at 'the auction was the amount paid by the purchaser plus the amount due on the prior mortgages, and that since the property had been exonerated in respect of the prior mortgages, the sums due on the footing thereof, amounting to more than Rs. 1,60,000, were now due to the plaintiffs as unpaid vendors. They accordingly claimed this sum and also claimed a lien on the villages for the amount due and their sale in the event of non-payment. The suit was dismissed by the trial Court and the appeal to the High Court appears, in the words of Lord Macnaghten, who delivered the judgment of their Lordships of the Privy Council, to have perplexed the two learned Judges before whom itcame and there was a disagreement between them, the third Judge to whom the appeal was then referred agreeing with the learned Chief Justice that the plaintiffs' suit should be decreed. The nature of the plaintiffs' claim, however, appears to have presented no difficulty whatsoever to their Lordships, whose views have been expressed with the utmost clarity by Lord Macnaghten in the following passage:
'With the utmost respect to the learned Judges of the High Court, their Lordships are unable to discover any difficulty in the case. It seems to depend on a very simple rule. On the sale of property subject to encumbrances the vendor gets the price of his interest, whatever it may be, whether the price be settled by private bargain or determined by public competition, together with an indemnity against the encumbrances affecting the land. The contract of indemnity may be express or implied. If the purchaser covenants with the vendor to pay the encumbrances, it is still nothing more than a contract of indemnity. The purchaser takes the property subject to the burthen attached to it. If the encumbrances turn out to be invalid, the vendor has nothing to complain of. He has got what he bargained for. His indemnity is complete. He cannot pick up the burthen of which the land is relieved and seize it as his own property. The notion that after the completion of the purchase the purchaser is in some way a trustee for the vendor of the amount by which the existence, or supposed existence, of encumbrances has led to a diminution of the price, and liable, therefore, to account to the vendor for anything that remains of that amount after the encumbrances are satisfied or disposed of, is without foundation. After the purchase is completed, the vendor has no claim to participate in any benefit which the purchaser may derive from his purchase. It would be pedantry to refer at length to authorities. But their Lordships, under the circumstances may perhaps be excused for mentioning -- 'Tweddel v. Tweddel', (1787-2 Br C C 151); -- 'Butler v. Butler', (1800-5 Ves Jun 534) and -- 'Waring v. Ward', (1802-7 Ves Jun 332).
4. It now remains to be considered whether the apparently simple lucid and comprehensive statement of the law thus laid down has adequately or properly distinguished in the cases relied on by the learned counsel for respondents. The first of these is -- 'Raghunatham Chariar v. Sadagopa Chariar', 36 Mad 348. This was a case in which the plaintiff instituted a suit for the recovery from the defendant of a sum of money which the latter had agreed to pay to two other persons in consideration for the transfer to him by the plaintiff of two decrees standing in his favour. The plaintiff alleged that the defendant had failed to pay the amount due to the said two persons, and that he himself had been obliged to pay it to them. The plaintiff had failed in the trial Court and in the Court of first appeal, but this appeal was accepted by Abdur Rahim and Sundara Ayyar JJ., who held that the plaintiff was entitled to sue the defendant for the recovery of the money as if it was due to him in case of the defendant's failure to pay the third persons within a reasonable time, and the plaintiff was not in such a case bound to show that he was in any way damnified by the defendant's failure. The 'ratio decidendi of the case appears to be contained in the words at page 360 -
'It is no doubt conceivable and possible that an assignment of property may be made in consideration merely of the assignee agreeing to indemnify the assignor against some claim by a third party. But this is not the natural interpretation to. be placed where the value of the property assigned is ascertained between the parties and the assignee is directed to pay that value to a third party.' In fact the suit appears to be of quite a different type from the present suit, and it is not surprising that when the decision of the Privy Council was cited on behalf of the defendant it was held to be inapplicable, and it is perhaps unfortunate that the words used in discussing this judgment have been adopted in later decisions in cases more akin to the present suit. The relevant passage at page 331 reads: 'It is perfectly clear that the Judicial Committee was dealing with a case where a vendee pays a certain price for the equity of redemption and agrees to indemnify the vendor against the claims of the incumbrances, and not one where he agrees to pay a certain sum of money for the land sold to him and undertakes to pay a portion thereof to incumbrances. Their Lordships observe that in such a case an express promise to discharge incumbrances against which the purchaser covenants to indemnify the vendor, does not change the nature of the vendor's right which is only to be indemnified against certain claims, and not to have certain sums of money belonging to him paid to another.'
5. The first of the other cases relied on by the respondents is -- 'Bahadur Chand v. Bahadur Singh', AIR 1935 Lah 50(2), a decision of a learned Single Judge, Bhide, J. The facts in that case were that one Palhu mortgaged a house to Bahadur Chand for Rs. 300 and later sold the same house to Bahadur Singh for Rs. 1500, out of which it was stipulated that Rs. 400 were kept by the vendee for the discharge of the debt on the mortgage. Bahadur Singhj however, did not pay this amount to the mortgagee who instituted a suit to enforce his mortgage which resulted in the sale of the house for only Rs. 180/-. The mortgagee then sought to attach the sum of Rs. 400/- lying with Bahadur Singh as the debt due from Bahadur Singh to Palhu. His application was rejected but his appeal was accepted by the High Court, Bhide J., holding that the sum of Rs. 400/- had been kept with the vendee on the definite understanding that he should pay it to the prior mortgagee and the vendee had failed to carry out the terms of the contract although the mortgage subsisted, and in these circumstances the vendor was entitled to have this amount refunded to him and it could, therefore, be looked upon as a debt due to the vendor and was liable to attachment. The judgment is very brief and in reaching this conclusion the learned Judge simply observed that he followed the decision in -- 'Raghunatha Chariar v. Sadagopa Chariar', 36 Mad 348, in which the decision of the Privy Council in - 'Izzat-un-Nissa Begam v. (sic) Singh', 31 All 583 (PC) had been distinguished. The decisions in question were merely mentioned but not discussed at all.
6. The next case is -- 'Rameshwar Dayal v. Hari Kishen', AIR 1940 All 351. This was a case in which the vendee from a mortgagor retained the amount due on the mortgage which was included in the purchase price for payment to the mortgagee and paid the balance of the purchase money to the mortgagor, and in the meantime the U. P. Agriculturists' Relief Act was passed, by which the vendee was able to clear off the mortgage debt for less than the amount which was due, and it was held by Ben-net and Verma, JJ., that in these circumstances the mortgagor was entitled to recover the balance as unpaid purchase money. The decision of the Privy Council in -- 'Izzat-un-nisa Begam's case', (3l All 583 P C) was mentioned but was held not to be applicable to the facts of that case and the learned Judges based their decision on the decision in -- 'Mt. Naima Khatun v. Basant Singh', 56 All 766 (FB). That, however, was a case of a very different nature, in which the plaintiff had executed two mortgages of three items of property in 1923, and in 1925 he sold to the defendant one of the mortgaged properties leaving with him the sum of Rs. 19800/- out of the sale consideration for payment to the two mortgagees, and at the same time the defendant had executed a security bond in favour of the plaintiff undertaking to pay the Rs. 19800/- to the mortgagees by a certain date and in case of failure to do so to be liable to pay to the plaintiff Rs. 15,000/- as damages in addition to Rs. 19800/-. The defendant failed to make any payment to the mortgagees who instituted suits against the plaintiff on the basis of their mortgages and obtained decrees, whereupon the plaintiff brought a suit against the defendant to enforce the security bond for the payment of Rs. 19800/- plus Rs. 15000/-. At the time of the suit the plaintiff had not paid anything to the mortgagees but the properties had not been sold in execution of the mortgage decrees, and in these circumstances it was held that the plaintiff was entitled to a decree for the refund of the whole of the amount left in the hands of the defendant vendee with interest, but he was not entitled to any damages without proving the extent of damages incurred. It was also held that no decree for the specific performance of the original contract as it stood could be made in the case, but the plaintiff could, compel the defendant to pay the amount in order to release her other properties from liability even though she might not have suffered any loss. Here again the Privy Council decision was mentioned, but naturally it was found not to be applicable.
7. Finally, there is the case of -- 'Satyanara-yanamurthi v. Sathiraju', AIR 1942 Mad 525, in which it was held by Wadsworth and Patanjali Sastri JJ., that where part of the purchase money is retained by the purchaser for payment to the mortgagee and if the purchaser does not have to pay the full amount thus reserved with him owing to the mortgage debt being scaled down at the instance of the . mortgagors, he would be liable to return to the latter the portion of the purchase money remaining unpaid. In this case --'Raghunatha Chariar v. Sadagopa Chariar', 36 Mad 348 was relied on but it does not appear that 'Izzat-un-Nisa Begam's case', 31 All 583 (PC) was cited at all.
8. With due respect to the views of the learned Judges expressed in the cases mentioned above I cannot see any firm basis for any distinction of the rule of their Lordships of the Privy Council except in those cases where the nature of the suit was manifestly different from (sic) of the present suit. It there is sny basis(sic) 1 for any distinction it would seem to lie(sic) e tact that the property was purchased in(sic) zat-un-nisa Begam's case', 31 All 583 (PC)(sic) public auction in execution of a decree and(sic) the property was sold simply subject to (sic) charges created by the two mortgages, one(sic) which was already the subject of a decree (sic) time of. the sale, whereas in the present case and sortie of the other cases cited a specified portion of the sale price was retained by the vendee'for the discharge of the mortgage debt. In some of the cases cited the mortgage debt was still in existence, and in others it had been scaled down, while in the present case it had been extinguished altogether by the operation of a statute -- the Punjab Restitution of Mortgaged Lands Act. Those cases in which the mortgage debt was still in existence at the of the suit are clearly distinguishable, but(sic) regard ,to the other cases I cannot see that (sic) facts that the sale was by private arrangement (sic) or that the portion of the sale price which(sic) apportioned 'to the discharge of the mortage(sic) debt was specified, are sufficient to take(sic) case out of the scope of the rule laid down in -- 'Izzat-un-nisa Begam's case', some portions (sic) of which it seems necessary to cite once more.The first point is dealt with in these words:
'On the sale of the property subject to encumbrances the vendor gets the price of his interest, whatever it may be, whether the price be settled by private bargain or determined by public competition, together with an indemnity against the encumbrances affecting the land.'
The second point appears to the to be covered by the words-
'The contract of indemnity may be express or implied. If the. purchaser covenants with the vendor to pay the encumbrances, it is still nothing more than a contract of indemnity. The purchaser takes the property subject to the burthen attached to it. If the encumbrances turn out to be invalid, the vendor has nothing to complain of. He has got what he bargained for. His indemnity is complete, He cannot pick up the burthen of which the land is relieved and seize it as his own property. The notion that after the completion of the purchase the purchaser is in some way a trustee for the vendor of the amount by which the existence, or supposed existence, of encumbrances has led to a diminution of the price, and liable, therefore, to account to the vendor for anything that remains of that amount after the encumbrances are satisfied, or disposed of, is without foundation. After the purchase is completed, the vendor has no claim to participate in any benefit which the purchaser may derive from his purchase.'
In my opinion this decision would apply in a case like the present in which the purchaser undertook to discharge the mortgage debt, but later, became the unencumbered owner of the land by the extinction of the mortgage debt through the operation of a statute, and therefore the vendors, and consequently the plaintiffs who had acquired the vendors' rights, had no claim to the sum of Rs. 1700/-.
9. I would accordingly accept the appeal and setting aside the decree of the lower appellate Court, restore the decree of the trial Court dismissing the plaintiffs' suit. In view, however, of the difficulty of the point involved I would order the parties to bear their own costs throughout.
10. I am of the same opinion and have nothing to add except this that the observations of Lord MacNaghten make it quite clear that whether there is an express covenant by the alienee to pay the previous encumbrance or not, the vendor has no right to participate in the banefits which the purchaser may be able to get either because the encumbrance no longer exists or is unenforceable or the amount of the encumbrance is scaled down by agreement or by operation of law.